Archive for the ‘Public Policy’ Category

Time For Another Look At Five New Measures In China

Thursday, May 9th, 2013

It has been over two months since the Central Government announced the “Five New Measures” in early March. How have these measures worked so far? The new round of tightening policies was aimed at taming housing price growth by addressing several key issues, such as continuing to implement HPRs, increasing the supply of small- to medium-sized apartments and discouraging investment purchases by increasing transaction costs. As we stated right after the announcement, the new measures remained consistent with the structure of the existing policy regime, and the emphasis was placed on the detailed implementation of the measures at the local level.

Following the announcement from the Central Government, many city governments waited until the end of March to reveal their local implementation details. However, most of them failed to address some of the key issues, and Hainan Province even refused to implement the new measures. At the time of writing this article, only the Beijing city government had enforced the implementation of a 20% capital gains tax, while the governments of cities like Shanghai and Guangzhou have not given an explicit timetable for implementation.

It has long been our view that there are sufficient government policies in place in China to help stabilise the market. It is the lack of enforcement and strict implementation of those policies that has led to the problem of prices rising too quickly. A good example is the HPRs, which were introduced in over 20 cities in 2011 but got gradually loosened throughout 2012. Local governments at the city level have been very reluctant to enforce national policies as their revenues have a heavy dependence on the real estate industry, with land sales being a key revenue source.

Sales volume across the major cities started trending downward in April. We believe this will result in a stabilisation in prices over the next few months if sales remain subdued. However, this volume slowdown is due to a spike in activity before the local governments made their announcements at the end of March rather than because enforcement and implementation are more strict. Over the past two years, the market has been driven primarily by first-time homebuyers and upgraders, who are the participants the government should and will continue to support. Investors and speculators can be kept out of the market as long as the existing measures are enforced and implemented strictly at the local level. An additional policy we think is needed for the long-term sustainability of the sector is the property tax, which would help rationalise purchase incentives and create a steady revenue stream for local governments, reducing their reliance on land sales.

About the author
Joe Zhou is the Head of Research for Jones Lang LaSalle in Shanghai.

Posted in China, Public Policy, Residential Research | No Comments »

Fooling the Space Index: Strategic Densification of Mumbai

Monday, January 9th, 2012

Per the recent census of 2011, the Mumbai Metropolitan Region has over 23.5 million people. To house this population on the ground floor, assuming a household size of 4 and dwelling units of 900 sq ft per family which are laid wall to wall, we would need 121,384 acres of contiguous land. If all these houses are built facing the street (for access), providing a frontage of 20 ft to each unit, the total length of the street would be 35,606 kilometres!

Being the commercial capital, the city attracts not only migrants from all parts of India, but also has a high floating population which commutes to the city for work everyday. This high density calls for developments to be vertically stacked by design, with multiple functions layered one over the other. Still the case for increasing the Floor Space Index (FSI) in the city, which would enable more construction over the same land area, has always been met with stiff resistance on practical, sustainable and ethical grounds. Permissible FSI in South Mumbai is 1.33, while that in the suburbs has recently been increased from 1 to 1.33. Additionally, developers can purchase Transfer of Development Rights (TDRs) and construct up to a FSI of 2. However, this is low compared to global destinations, such as Singapore, New York and Hong Kong Island Urban Area, which have FSI of 5, 10 and 12 or above respectively within a radius of 10 kilometres from the city centre. What does this imply for Mumbai real estate?

Real estate developmental density in Mumbai has not kept pace with the growth in population density. Due to the huge pressure on its already scarce land resource, market forces have tended to circumvent the base FSI regulations and build more through ‘discretionary approvals’ in lieu of construction of civic amenities such as parking structures. Also, certain construction features, which were excluded from FSI such as balcony, flower-bed, voids and niches, were manipulated so that they could be utilised as habitable spaces post construction. These innovative circumventions of building regulations are nothing but ‘creative feedbacks’ by the industry.

Last week, the Government disapproved of these discretionary approvals for construction, and has come up with amendments in the Development Control Regulations. To increase transparency and remove layers of regulations, an all-in FSI calculation has been stipulated, which includes the FSI-free design features. In lieu of lost volume of construction, developers can build 35% extra (as Fungible FSI) by paying a certain premium to the Government. This could keep the construction volumes nearly the same, as developers used to overbuild nearly 25%-30% as FSI-free features. However, now, the developers would be more inclined to include this extra 35% as usable carpet area in the properties, resulting in better efficiencies in terms of carpet area to saleable area ratios. We could see more box-like residential towers which provide a maximum habitable area to the tenant, instead of lavish architectural projections such as balconies and other design features. It would also make the industry a level-playing field for developers, due to the purge in discretionary approvals.

The moot point to debate is: Is Mumbai building enough? Should FSI be increased from its current levels of 2 to 5 or 10? The issues are as much scientific and statistical as they are ethical. Some points to ponder:

• Strategic densification through a differential FSI regime based on micro-zoning instead of the current uniform FSI system is the key for balancing densities with infrastructure.
• Construction volume is directly dependent on the carrying capacity of developed infrastructure in terms of roads, water and power. Hence, permissible FSI can be mapped with projected completions of infrastructural projects, leading to zones or corridors of high-density development.
• Urban renewal should not be blindly incentivised by higher FSI, as it might lead to congestion in zones which have older properties.
• Strategic densification of suburban nodes could be explored as development of infrastructure is convenient at low-density locations.
• Premium monies collected for higher FSI should be compulsorily ploughed back through investments in infrastructural development.

About the author
Himadri Mayank is the Senior Manager, Research and Real Estate Intelligence Service for Jones Lang LaSalle in India.

Posted in India, Land Supply, Public Policy, Sustainability, Urban Development | 2 Comments »

Where is the Open Space in Mumbai?

Wednesday, November 2nd, 2011

People familiar with Mumbai’s residential market might be aware about the special provisions developers make in their upcoming projects; swimming pool, sports arena, theme gardens, podium park and much more. It has gone to the extent of providing personal decks, flower beds and lily ponds at every floor, and jogging tracks on the terrace! I have wondered for long about why so much “non residential space” is being provided along with a humble house where the space loading is as high as 80% on the carpet area of the house and I think I found the answer in Mumbai’s abysmal availability of open spaces.

Mumbai, for its 14 million people has public open space of only 14 sq km (out of 480 sq km) or just 2.5% of its city area. This includes parks, playing fields and recreation grounds and accounts for only 1.95 sqm space per capita. This is grossly below the UN FAO (United Nations Food and Agriculture Organization) standard of 9 sqm per capita and significantly less than Delhi and Bangalore’s offering of 15 and 6.4 sqm per capita respectively. In fact, Chandigarh in north India offers 35% of its city area for open spaces, Delhi utilizes 20% for gardens and parks, and even the world’s most congested cities like Tokyo and New York are better off than Mumbai with 6 and 2.5 sqm per capita, respectively.

What I found more disturbing was not utilisng Mumbai’s natural gifts. An open western coast line of 35 km and a natural harbour on its eastern coast is kept away from people with less than ten organised access areas to the sea. With hardly any watersports and occasional water front parks, Mumbai’s biggest neighbour- the Arabian Sea is reduced to a mute spectator for Mumbaikars’ (Residents of Mumbai) plight for lack of recreation areas.

Mumbai has a 50 sq km- national park within, but is underutilised; has areas covered by mangroves and wet lands that are meant to be a protected zones without public access but that are fast being encroached by squatters.

And hence, Mumbai’s real estate is creating its own family level open spaces in its residential projects. It is clear that only the crème-de la crème can afford this but the aspiration fast trickles down from luxury to high end and then to mid end residences where one pays almost twice the money for buying “non residential space” while buying a house. Creating such spaces artificially on a concrete base means a heavy carbon footprint, higher energy consumption, depriving air space for additional residences that the city requires so badly, and above all taking the property price beyond the sustainable limit for the majority of citizens.

When the buyers pay through their nose, the city authorities gain nothing as their tax is based on habitable areas and not on the add-ons. Finally, the city authority has acted and will charge a premium from developers for allowing construction of “non residential” elements. Such as lily ponds, flower beds, covered swimming pools and other fancy facilities.

I hope that this revenue will be judiciously used to free enclosed public spaces, to create more open areas for everyone in the city and to generally improve the infrastructure to breathe a new life into Mumbaikars’ stressed life with more green to soothe the eye, more oxygen towards healthier breathing, more spaces for people to stay fit and also for birds, bees and flowers to be part of this thriving city that never sleeps!

About the author
Ashutosh Limaye is the head of Research and Real Estate Intelligence Service, for Jones Lang LaSalle in India, based in Mumbai.

Posted in India, Public Policy | No Comments »

Up in the Air

Tuesday, October 4th, 2011

‘Air rights’ create a form of development right, which allows property owners to utilise the unused, vacant airspace above the property. Akin to other property rights, globally these are tradable commodities, which can be transferred to other properties or to other parties.

Historically, property owners retained essentially infinite property rights. Property laws define the right to air & light and right of way as inalienable rights for property owners. As cities have developed, the civic authorities have stepped in to create total development area, height and zoning regulations to prevent infrastructural and development bottlenecks. Air space regulations and other safety and security regulations have also created barriers to growing vertical. Hence, owning unrestricted air rights over individual properties is an infeasible proposition today, as an overhead flying aircraft will be constantly trespassing individuals’ property rights! Particularly near airports it is imperative for regulatory authorities to define navigable airspace and a reasonable area for take off and landing, which trumps all individual claimed air rights.

The concept of utilising air rights gained traction as early as beginning of the last century when American railroad companies realised the importance of air rights above the railroad stations. Examples of the iconic Grand Central Station in New York and towering structures around it are testimony to utilisation of air rights. Air rights sale by state and central governments along freeways which cut through large parts of a city also is a rather common phenomenon in the US. Singapore, one of the mostly densely populated countries in Asia, has also utilised air rights to develop its iconic skyline.

In India, the metropolis of Mumbai has a Transfer of Development Rights as a comparable, through which unutilised Floor Area Ratio in one project can be utilised elsewhere and even sold to a third party. Indian Railways and associated agencies have been the pioneers in air rights utilisation, actively monetising their large land holdings via rail yards. This is not only generating additional revenue for the Railways but also ensuring Railways’ own space requirements are met through the subsequent planned developments. The Delhi Metro Rail Corporation has allowed the private players involved with the Metro construction to utilise air rights for commercial and retail use. The Department of Posts which owns numerous post offices across the length of the country is attempting a similar exercise which has great potential across Tier II and Tier III towns. Utilising air rights as a means to finance the real estate development and create a taller, iconic skyline to reflect their status as rising global cities is the way forward for Indian cities. The technique is to first allow air rights to be tradable and thence to acquire the right to use the open space over such low-slung installations as roadways, railroad yards and schools, and to fill that space with new buildings. The windfall to the state machinery and the monies received from developers will go a long way in bridging the funding gap for achieving country level development across all priority sectors. The caution in this tale – ensure that support infrastructure is adequately planned to enable creation of a sustainable and optimal city ecosystem.

About the author
Rohan Sharma is the Research Manager for Jones Lang LaSalle in India, based in Gurgaon.

Posted in India, Public Policy, Urban Development | No Comments »

The Inheritance of Misery and Ending India’s Apartheid towards Its Poor Landowners

Monday, September 5th, 2011

Last week saw an unprecedented turn in India’s history, when public opinion and passive resistance led by a small group of “civil society” representatives rushed the country’s parliamentarians to reluctantly proceed towards an anti-corruption legislation. With a series of alleged graft cases that emerged during 2010, the country is getting desperate for an urgent and decisive solution to its burgeoning costs of corruption.

Land and natural resources – their ownership, use, acquisition and availability form the core of public discontent and corrupt practices in India, especially for its poor landowners. Land tenures in India are subject not only to statutory laws, but also to customary laws in several cases across the diverse landscape of the country. Due to the lack of transparency in transfer and acquisition processes as well as establishing ownership, the advantaged sections have a significant control over land assets in the country. Corruption is evident in the change of land-use, processes of land acquisition and the numerous disputes over legal ownership of land assets in the country.

For some, it is a measure of wealth, for some, it is a means to subsistence and for others, land becomes the inheritance of misery. How do we end this apartheid towards a majority of poor landowners in developing countries?

The Peruvian economist Hernando De Soto argues in his seminal work ‘The Mystery of Capital’ that capitalism works in the developed countries because assets in these countries are represented in a property document, which “provides a link to the owner’s credit history, an accountable address for the collection of debts and taxes, the basis for the creation of reliable and universal public utilities and a foundation for the creation of securities that can then be rediscounted and sold in secondary markets”. On the other hand, poor property owners in developing countries lack the process to represent their assets and create capital. They might have houses, crops and businesses. What they lack are titles, deeds and statutes of incorporation.

The solution towards successful domestic capitalism in the developing countries would be to convert this dead capital into assets which represent legal ownership. Every developed nation in the world went through the transformation from predominantly informal and extralegal ownership to a formal and unified legal property system. Several recent measures by the government suggest that India is stepping into this long transitional process of providing identification to its people and their assets.

The first step towards legalising ownership is establishing the right to one’s identity. The various identifications issued by state and central authorities over a period of time have resulted in layers of multiplicity in identities due to the lack of reliable authenticity. The Unique Identification Authority of India (UIDAI) was established in February 2009 with an aim to provide a single source of identity verification for residents and maintain a centralised database of basic demographics and biometric information. This will be instrumental in proliferating financial, political, educational and healthcare inclusion; regulating the public distribution system and ensuring entitlements to state-sponsored and other socio-economic benefits and subsidies. Another initiative is the National Land Record Modernisation Programme (NLRMP) by the Ministry of Rural Development in India to computerise the land records, updation of survey and settlement records and the computerisation of registration processes.

Even if we have established the identity of an individual and her/his rights over their tangible assets, only fair and just legislations over acquisition of these assets would ensure that the rights are protected. Recently, the Ministry of Rural Development has drafted the National Land Acquisition and Rehabilitation & Settlement Bill to update the century old Land Acquisition laws in the country. It combines the process of land acquisition with the processes of rehabilitation and resettlement, as both of them are inseparable in context.

While some of these initiatives and processes are indeed lengthy and time consuming, the gradual changeover that we will witness will become a crucial milestone in the country’s history of giving its citizens inclusive rights, ownership and participation over growth and development.

About the author
Himadri Mayank is the Senior Manager, Research and Real Estate Intelligence Service for Jones Lang LaSalle in India.

Posted in India, Land Supply, Public Policy | No Comments »